Blog Visitors' CommentsCondo Search's comment..
I just drop by to say "thank you" for your excellent blog, and safe me from committing at a high price and wrong time buying. It helps me a small property hunter(with hard earning money) and others(i believed)a better inform. Thank you again...

Young Buyer's comment...
I've just graduated and started working, and I hope to own a residential property in Singapore after 2010/2011. So I'm starting to do my Singapore property research now. I have never come across such a comprehensive coverage on the Singapore property market, and I thank you for enlightening readers like me who want to know more :) Keep up the good work!

Young Expat's comment...
i am an overseas expat who moved to singapore a year ago and started looking out recently for property to buy as rentals started to rise all around me..i was advised to follow ur forum and since then have been impressed with all the wonderful tips exchanged in this portal..thanks to all the contributors.(Smart Buyer, the blogger here, would like to say many thanks to all these unsung heroes too)

Red's comment...
I think your reply give a rational explanation on my question. You are indeed a smart buyer and very knowledgeable.

Kate's comment...
This is a great blog filled with latest news, historical insights and good opinions that gives direction. Not the sitting on the fence type of 'pc' opinions. I love this blog. Please keep up the good work! You are really doing Singaporeans a big favour! Thank you!! I will keep on reading.

Phantasia's comment ...
Hi smart buyer,
Just wanna say thanks for your response to my query earlier in another post. And also for the very informative blog! Have learnt much from your postings! Thanks for sharing.

Smart Buyers, 10 reasons to waitFear that property price will go up forever? Here are 10 reasons to consider before you make that big commitment.......Posted by Smart Buyer(This post contains the 10 reasons that Smart Buyer first wrote for himself in mid 2007 when the property market was in a runaway euphoria, which he subsequently posted on this blog for all property buyers to consider. The arguments are supported by official data and illustrated with property supply and property price index graphs.)

Bad investments are made in Good Times
Looking at the subprime problem, it is definitely a bad news that will take time to filter down. The falling US$ is another problem that will hit the US economy. China and HK property and share mkt are 2 big bubbles.. Beware !!...Posted by km(This post contains km's first-person account of the 1998's property market crash and all the troubles that came with it - soaring mortgage rate, vacant properties with no available tenants, banks pressing for top-ups as property valuation dropped, ... his story has a happy ending of course. He'd share with you openly the lessons learnt.)

Solvency Worries STALK CREDIT-DERIVATIVES MARKET. They are now talking of SOLVENCY, not just LIQUIDITY issue .......it's really quite serious now....Posted by AnonymousHaving a house which has a big loan is a liability at this global trouble time.So far the market is still moving down slow due to the reason that many of the countries are injecting funds to buy part of the share of the banking market. The negative news continues to rise. The money is better leave in CPF and local banks to grow interests....Posted by Anonymous

During the 1995 -1998 period, the same scenerio arise..Many people cant get the HDB flat. There was the ballot system and it is just like "ti-kam", 1 out of 8 can get to buy. Due to this flocked system, many people, including those who are not so keen buyer also join the Q, paying $10 as a ballot fee, when they get balloted, then ......Posted by Anonymous

This market is definitely driven by greed and liquidity.I have never seen anything like it in my lifetime. Property prices goes up as fast a the stock market. This market is definitely driven by greed and liquidity in the asian market. What goes up must come down!...Posted by rob-502

Your Property Investment Decides Your Financial SuccessYour Property Investment may be the sole determinant of your financial success in life. One wrong move,......Posted by Smart Buyer (This post contains Smart Buyer's first-person account of the 1990's boom and bust, and how investment opportunities presented themselves in the market crash of 1998 and 2006.)

Tuesday, August 19, 2008

Nowadays, not a day passes without the papers reporting bullish news of prospective property deals; some argue that the residential property market is in the beginning of a new secular boom that could spread to the lower-end housing markets while others are significantly more cautious and cynical. In both camps the comparison is inevitably done with the property bull market of the early 1990s, when this asset class reached speculative heights and ultimately became a bubble that was pricked by consecutive blows of government regulatory measures and regional political trouble.

The fundamental case for property investing in the early 1990s was predicated on the rise of Singapore domestic demand. With economic stability and increased purchasing power built up over preceding years, it was time for asset enhancement in the 1990s. Young Singaporeans were being urged to marry and population control and immigration policies were being revised, adding to the demand for housing. Households were becoming increasingly double-income, increasing the purchasing power for big-ticket items. CPF balances were rising in-step with incomes, providing the financing means for purchasing expensive private property.

The sentimental case for property investing had been built up over the years. Since independence, the government had been promoting home ownership as a crucial tenet of nation building, and a huge majority of Singaporeans (~80-90%) owned the apartments they stayed in (mainly HDB). Hence increasingly over the years, property was seen as a good investment as prices were well-supported by the abovementioned government stand towards home ownership, the scarcity nature of Singapore property (the supply side), and perceived continued economic growth and stability (the demand side). Demand also trended towards more expensive private housing as people strove to upgrade their lifestyles. Many fellow Singaporeans will remember the Singapore dream built on the material five Cs: career/cash, credit cards, car, condominium, country club membership. Hence snob appeal and social aspirations accounted for an additional component of property demand meant for consumption.

Property as a comparative investing instrument was superior to other asset classes. There were few avenues for the less-educated to put their money: bonds had never been an Asian mass-market instrument, there was mass distrust of stocks due to their volatility (the market had shot up in 1993 and then dived back down in 1994), and money deposit rates were low. This also meant that housing loan rates were low (6% or less) and hence money was cheap. The unique standing of property as the only main investment instrument that could draw on the bulk of CPF funds enhanced its appeal; people tended not to think of it as "real money".

Given the above factors, property purchasing for consumption and investment soon turned into speculative buying. Stories of people buying an apartment for $500,000 and selling it for $700,000 a year later were part of the popular folklore. One apt description was that "people are buying property like groceries". This, of course, refers to the particular segment of property sales known as sub-sales, where people buy a property and then sell it off even before completion --- the most direct measure of speculative activity. At the height of the mania in the mid-1990s, there were the much-publicised midnight queues preceding condominium launches and the peaking of the highly reliable contrarian index known as the "market/coffeeshop auntie/uncle - buying, selling and recommending property" indicator.

All segments of the residential market were booming, including newbuilds, resales, public (HDB) and private housing (condominiums). From 1986 to 1996, the private residential price index rose by about 440%. About two-thirds of this gain was in the early 1990s up to 1996. See below for a graphical representation. There was a big merry-go-round as sellers became buyers of other properties, whose sellers then sourced for new residences. Over 1992-2002, 58% of the 3-million population changed homes. Among private homeowners, it was almost 70%. This created an upward spiral of property prices that was exacerbated by the speculative elements.

In 1996 the government introduced regulations to cool property speculation, which included heavy taxes on profits made from property sold within three years of purchase --- a measure targeted at property speculators. It had to end somewhere. Rocketing property prices were increasing the costs of living, driving some citizens out of Singapore and decreasing its long-term business competitiveness. The private residential property market prices collapsed; the end of the bull market was confirmed by the 1997-98 Asian financial crisis that destroyed foreign demand drivers from the ASEAN region. With the exception of a minor mini-rally in 2000, private housing prices had dropped 30-40% by 2003, since they peaked in 2Q96. The HDB resales market was better although it was never to reach the heights of 1996, primarily because the government was careful about its impact on ordinary, less well-off Singaporeans.

Still, the damage had been done. The term "negative equity" is used to describe a situation where the difference of the investment's market value and the debt incurred in financing it is negative --- a predicament that many Singaporeans have been stuck in. The plunge in residential-property prices also had an impact on private consumption - fewer owners were able to withdraw equity from their homes to borrow against the increase in value to finance other consumption. As a result of heavy investments in property, Singaporeans are asset-rich and cash-poor, even counting their CPF retirement money. It is an example of how investments based on solid fundamentals can turn into speculative buying egged on by peer pressure to "make money while it lasts"; when the primary driver is sentiment and liquidity rather than fundamentals, it can be prone to sudden drying of liquidity that causes prices to plunge. In this case, the reversing of government policy towards controlling asset inflation just happened to be the catalyst that caused the U-turning of residential property prices. Even if it had not taken place, the hit would still have been suffered in the 1997 Asian financial crisis. It was a disaster to happen, and as always, it was one that was precipitated by human envy and greed, in my view.

9
comments:

Anonymous
said...

Excellent piece of analysis.One conclusion is that the Government should consider be more involved in regulating the private property market ensuring an orderly and sustainable property market in Singapore. We are a City only and cannot compare to New York, London,Hongkong, Tokyo or Sydney. These cities in USA, UK, China, Japan and Australia are rich in land. We are limited in space and land. We cannot afford high private property (especially ondominium) prices to be left unchecked and exposed to speculations or in the hands of a few powerful developers. Soon, we priced ourselves out and become expensive place to live in not only for talented foreigners but our fellow citizens will be worst of.

Making Singaporeans asset-rich and cash-poor is also the government's strategy for increasing the stake of Singaporeans in this little dot. Government is therefore ok with speculation pushing up property price, until and unless the speculation gets out of hand and becomes a threat to the stability of our financial instituions.

Agree that the government is allowing the price to goes up(within their mean like control the supply of land). That will help rich individuals and institution stay in Singapore. The way we are going, we can be like Hong Kong in the future. (At least Hong Kong people who cannot afford the expensive life in Singapore can move to China.

The government will notice how every time the property price shoots, the number of young Singaporeans migrating also increases. The young, talented Singaporeans are very mobile. We may be left with the not so talented, poor and old Singaporeans. We cannot go on depending on immigrants from China and India. Their economies will surpass ours in the next decade. The government have to work harder at retaining our local talents first. The ECs and DBSS are government's strategy to meet housing needs of these Singaporeans with higher aspirations. But, they are too expensive and paying for them means sacrificing a lot of other things which define a higher quality of life like time available for family, pursuit of personal interest ... Now, it's all about work, work, work and then, pay off your mortgage, get old and die ..

I've been forced into retirement because of ill-health but I still have to pay for my HDB mortgage. I want to join the HDB buy back scheme but friends say it's a bad deal. Should I sell my HDB flat in the open market or sell to the government ?

Both my hubby and I are grads and have been working for the past 2.5 yrs. We are just married but no sign of getting a flat due to sky high prices. It's a frustration that many of our grad friends face too...Even as graduates, we are worrying ALOT and facing issues with cost. I really do wonder how the non-graduates are facing the mounting pressures of living in Singapore.

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The blogger here has been affectionately named by close allies as "Smart Buyer" but really, he's not smart. Smart Buyer just believes that being prudent is smart. That's the essence of the message of this blog and Smart Buyer hopes it'll benefit other property buyers.